AMF Reforms Premarketing Rules to Draw Investment Funds to France

The Autorité des marchés financiers (AMF), France’s stock market regulator, recently released a report produced in partnership with the French Asset Management Association (AFG) with the view to facilitate the development at the international level of those asset management players that have chosen to domicile their funds in France, thereby strengthening the pivotal role of Paris as a financial center.

The report – a result of the French Routes and Opportunities Garden (FROG) workshop, consisting of AMF officials and industry representatives from prominent banks and investment funds – proposes seven concrete innovations, some of which are of a regulatory nature. Some of them have already been adopted by the AMF.

Introduction of the Premarketing Regime

One of them was the introduction of the “premarketing” concept. As a consequence, the AMF adjusted its policy to make it easier to launch new funds in France, adapting its definition of the act of marketing units or shares in undertakings for collective investment in transferable securities (UCITS) or alternative investment funds (AIF) in France. Indeed, managers often seek to communicate with potential investors to gauge the level of interest in potential investment funds. However, in order to do so, they needed to comply with regulations governing the marketing activities of funds, making it difficult for managers to conduct presentations or other exchanges with prospective investors without complying with extensive and potentially expensive regulatory burdens.

As a result of the FROG group’s efforts, the revised rules now allow asset management companies to contact either a maximum of 50 potential investors or nonprofessional investors whose initial subscription is equal to or greater than €100,000 to assess their interest prior to the launch of a UCITS or an AIF. Doing so will not constitute marketing, so long as the investors are not given a subscription form and/or documentation containing any definitive information.

The AMF also updated DOC-2014-04, its guide to regimes for marketing UCITS and AIFs, to include the following exemptions from marketing rules that are not linked with the launch of a fund:

• Participation by a management company in conferences or meetings of professional investors, provided the investors are not asked to invest in a specific product.
   
• OTC trades between investors.
   
• The purchase, sale or subscription of units or shares in UCITS or AIFs in the context of a management company’s compensation policy, units or shares in UCITS or AIFs on behalf of the management company’s management team, or carried interest shares.
   
• A management company responding to a request for proposal by a professional investor that is a legal entity.

Other Recommendations

The other recommendations included in the FROG report were:

1. Choose from a complete, unique catalogue of fund subscription solutions with a legislative change for the registered intermediary.
    
2. Benefit from a governance charter dedicated to investment funds, the main competitive advantage being asset management players are able to transform their common funds into a French SICAV (open-ended investment company) and thus satisfy a fundamental demand from investors for improved governance practices.
    
3. Develop one’s activities by having expanded delegation possibilities.
    
4. Apply adapted rules for the communication of management fees, with the possibility to split into two sections, financial management fees and administrative fees, taking into account international practices.
    
5. Manage in the best way one’s investment strategy, in line with the market conditions and in the best interest of holders, with French funds being able to benefit from an enhanced range of liquidity management tools, thanks to the addition of the redemption gates mechanism.
    
6. Decide on the absence or use of fund classification with the option for French managers to rely on the classifications defined in the French regulations as a marketing pitch for their funds and an investor information tool.

AMF’s efforts to attract foreign investment to France also comes amid uncertainty surrounding the long-term effects of Brexit. Many global banks and funds are either considering relocating or have decided on relocating their current London-based operations to continental Europe, with Germany, Ireland and Luxembourg among the destinations being considered for those concerned about maintaining access to the European common market. On that theme, the FROG report suggests the French asset management ecosystem should be on the list, with its regulator, management companies, depositaries, intermediaries and financial services providers contributing to create an attractive environment that would allow funds to continue to benefit from marketing and cross-border management mechanisms of the European Union. It also states that the Paris financial center offers “legal certainty” in the launch of new funds.

Although Brexit likely remains years away, the AMF’s efforts to attract investment funds to France demonstrates the highly competitive environment that has been created as a result of the referendum and the spread of UCITS and AIFs. As France seeks to attract private equity and venture capital funds to Paris, other financial hubs in the common market may consider offering similar incentives.